The movie was filmed without permission, what makes you think it couldn’t have been shown without permission?
Good Chinese folk can find ways around unjust restrictions just like any other country in the world. The first "festival"was held in a library in the University, probably not the type of festival you are imagining.
The Festival originated from Peking University, and is considered to be “the only community-based non-governmental film festival in China with a special focus on gender and sexuality”
The wiki explains that most of the crew from this movie is from mainland China, however it was made by a Hong Kong director and was filmed without permission from the government.
It explicitly states
at the time, no mainland Chinese publisher would have published it, nor would the author be safe from government reprisals. Hence, its anonymous publication on the Internet.
The film did had a brief showing run in December 2001, at Peking University, where interest by Chinese citizens was quite high, selling out the showings.